The prospect of looming tax rises and a fall in business investment will restrict the UK\u2019s economic growth rate next year to less than 1%, according to a health check of the economy by a leading consultancy.<\/p>\n
With less than four weeks before Rachel Reeves<\/a> delivers her budget on 26 November, the EY Item Club has downgraded Britain\u2019s growth for next year, indicating that the economy will continue to expand at a sluggish pace, limiting tax receipts and the chancellor\u2019s financial room for manoeuvre.<\/p>\n The Treasury\u2019s independent forecaster, the Office for Budget Responsibility<\/a>, is also expected to downgrade the UK\u2019s potential growth when it reports on budget day, based on a reassessment of productivity growth.<\/p>\n Officials at the OBR are likely to cut the expected annual increase in productivity by 0.3 percentage points, reducing the government\u2019s income by \u00a321bn before the end of the parliament.<\/p>\n The EY<\/a> Item Club, a leading UK economic forecasting group, said it was more optimistic than it was in July after upgrading growth for this year to 1.5% from 1% while maintaining the rate of expansion at 0.9% next year.<\/p>\n Matt Swannell, the club\u2019s chief economic adviser, said: \u201cThe combination of potential tax rises, global trade disruption and high interest rates is still anticipated to put a brake on economic momentum and produce modest growth over the next year.\u201d<\/p>\n Growth surged this year following a 3.7% boost from business investment, which the report said was unlikely to be repeated in 2026, when it is forecast to fall to 0.8%.<\/p>\n Unemployment will peak at 5% next summer, which will \u201cdrive a further slowdown in earnings this year, with pay growth expected to fall back to around 3.5% by the end of 2025 and 3% by the middle of 2026\u201d.<\/p>\n Anna Anthony, a managing partner at EY, said the economy had shown \u201cencouraging resilience and momentum this year, particularly in the face of significant global disruption\u201d.<\/p>\n She urged Reeves to \u201cstrike a balance between managing the deficit and measures that stimulate growth\u201d to maintain momentum.<\/p>\n \u201cThe UK has remained a competitive, stable investment destination during a period of international disruption, and preserving that attractiveness and welcoming global capital will be crucial to the UK\u2019s long-term economic prosperity,\u201d she said.<\/p>\n A survey by the Institute of Directors also indicated that growth would slow next year, following a steep decline in business confidence<\/a>. Its measure of optimism among business leaders dropped to an all-time low of -74 in September and edged only slightly higher, to -73, in October, the business lobby group said.<\/p>\n skip past newsletter promotion<\/a><\/p>\n Sign up to Business Today<\/p>\n Get set for the working day \u2013 we’ll point you to all the business news and analysis you need every morning<\/p>\n Privacy Notice: Newsletters may contain information about charities, online ads, and content funded by outside parties. If you do not have an account, we will create a guest account for you on theguardian.com<\/a> to send you this newsletter. You can complete full registration at any time. For more information about how we use your data see our Privacy Policy<\/a>. We use Google reCaptcha to protect our website and the Google Privacy Policy<\/a> and Terms of Service<\/a> apply.<\/p>\n after newsletter promotion<\/p>\n Executives who responded to the survey, which mostly covers small- and medium-sized businesses, said they were beginning to recover from a spike in costs, which had accelerated at a faster pace than revenues over the last year.<\/p>\n Anna Leach, the IoD\u2019s chief economist, said businesses were \u201cexpecting the worst\u201d from the autumn budget.<\/p>\n \u201cBusiness leaders are worn out from the past year\u2019s rollercoaster of uncertainty and tax increases,\u201d she added. \u201cWe hear repeatedly of the effects: planning horizons shortened, hiring cancelled or outsourced, and discretionary spend on hold. Businesses need certainty over their costs \u2013 both tax and regulatory.\u201d<\/p>\n Mel Stride, the shadow chancellor, said the survey showed business confidence had been \u201cshattered \u2013 not by global shocks, but by Labour\u2019s choices\u201d.<\/p>\n He said: \u201cMonth after month, it\u2019s the same story: uncertainty and speculation. Businesses are stalling on hiring and investment because they simply don\u2019t trust Labour to keep their word.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"The prospect of looming tax rises and a fall in business investment will restrict the UK\u2019s economic growth…\n","protected":false},"author":2,"featured_media":240921,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[84,1294,56,54,55],"class_list":{"0":"post-240920","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-economy","10":"tag-uk","11":"tag-united-kingdom","12":"tag-unitedkingdom"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/240920","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=240920"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/240920\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/240921"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=240920"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=240920"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=240920"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}